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Yelp Helping Local Restaurants, Hurting Chains

by: YOUNG MONEY Staff

A new report suggests that the online restaurant review site Yelp.com has had a notable effect on the success of restaurants, according to The Washington Post.

Michael Luca, an assistant professor at Harvard Business School, conducted a study making use of data from the Seattle Department of Revenue. Luca tracked the effects of changing Yelp ratings on 3,500 restaurants over a seven-year period from 2003 to 2009.

Yelp provides a simple zero to five star rating for restaurants in an area, and Luca found that a one-star increase in a restaurant's site rating led to a 5 percent to 9 percent rise in revenue. This affect was only apparent for local restaurants, however, with no noticeable change for chain restaurants.

Luca suggested this effect could be explained by the emphasis on consistency between restaurants and national branding, reducing concerns about the quality of an individual franchise. Luca also noticed a decline in chain restaurant revenue during his study, which he believes could be attributed to the rising mobile use of review services like Yelp.

Luca attempted to confirm the difference could be attributed to the site rather than other factors by comparing restaurants just at the edge of being rounded up or down, indicating the quality of the restaurants should be extremely similar. Ultimately, he found that these restaurants saw the same effect, according to The Wall Street Journal.